Who’s To Blame For High Health Costs? Study Suggests One Answer

Amidst a festering PR and lobbying battle between insurers and health-care providers, particularly hospitals, over who’s to blame for rising costs, a new study hands a weapon to the insurers. But hospitals are pushing back, arguing the research’s conclusions are flawed and unreliable.

The new research by the nonprofit Center for Studying Health System Change and funded by an employer-backed group called Catalyst for Payment Reform found the rates that hospitals charge private insurers varied widely, both between different cities and also often within the same market. The study attributed high prices largely to hospital market concentration, though it noted that some hospitals win generous rates largely because prestige makes them “must-have” providers.

The study zeroed in on eight different geographic areas and drew on data from Aetna, WellPoint’s Anthem, Cigna and UnitedHealth Group. It examined rates as a percentage of Medicare reimbursements. That strategy should theoretically cancel out a lot of the variation between locations due strictly to factors like local wage costs, which are supposed to be figured into the federal rates.

For inpatient services, San Francisco was the priciest area, with rates averaging 210% of Medicare, followed closely by Milwaukee, at an average of 205%. For outpatient, San Francisco was again tops, while second place went to Indianapolis. The analysis said the City by the Bay has “a high degree of hospital concentration and must-have hospitals,” along with low Medicaid rates — which some believe can lead to providers shifting costs to private insurers. Milwaukee hospitals are also somewhat concentrated, the report said, while Indianapolis has a number of distinct sub-markets that are dominated by particular hospital systems.

The study found doctor rates varied much less. But, hitting on the increasing tendency of hospitals to directly employ doctors, it said the relatively pricey physician services in Milwaukee are likely tied to the fact that most doctors there work for hospitals. That “allows the hospital to use its clout as a hospital to get high rates for the physicians it employs, and that’s something we’ll see more of in the future,” Paul Ginsburg, the author of the study and the president of CSHSC, tells the Health Blog.

Insurers have said that efforts to knit together hospitals and doctors into the newfangled and so far vaguely-defined “accountable care organizations” may risk driving up rates.

The American Hospital Association isn’t buying the study, calling its analysis “too deeply flawed to be a usable policy tool.” Among the group’s criticisms: each insurer used different methods to generate data, and the study really couldn’t back the claim that various types of hospitals all wield market clout to drive up rates. (Asked about this criticism via email, Ginsburg said through a spokeswoman that people will have to read the study and draw their own conclusions.)

It’s also true that the study didn’t look at the question of how the market power of insurers can affect rates, either those health plans pay to providers or what employers and consumers spend on coverage. That issue was highlighted recently when the Justice Department sued Blue Cross Blue Shield of Michigan on antitrust grounds, alleging that it struck anticompetitive agreements with hospitals, thus likely raising health costs.

Health care providers would love to earn the margins enjoyed by the insurance companies participating in the study. WellPoint's former chairman one year received a bonus larger than some hospitals' annual budget and larger than many hospitals' bottom line. And then there was the former United CEO who made "zillions" with back-dated stock options. While our model is far from perfect, the anticipated global payments under health care payment reform are a step in the right direction. As for who gets too big a slice of the pie, let's compare rates of return on invested capital or some similar benchmark rather than negotiated rates that incorporate a whole host of community-, payor- and provider-specfic variables.

10:46 am November 22, 2010

Free Market wrote :

...If the hospitals and physician groups that call this study flawed are unwilling to come to the table with what they consider unflawed data such as a schedule of fees: Uninsured = x, Insured = y (average to protect contractual issues) Medicare = z, Medicaid = w, Medicaid = v. Why this level of disclosure is not required by national healthcare "reform" is beyond me. If the consumers are the last to know the costs and price, the suppliers will perpetually control the demand. We already have socialized medicine in this country -- The costs on individuals and the government are not entirely direct. If this were not the case, the uninsured would not have access to emergency medical services. My point is not that we should not help those in need. Moreso that the true costs must be revealed and the status quo of upward price controls must be challenged and dismantled.

10:25 am November 22, 2010

Anonymous wrote :

So why are the Hospitals and providers coming forward with disclosing how their rates stack up to Medicare?